Credit deflation and the reflation cycle to come (part 3)

[Loki]

14 minutes ago, Hancock said:

About a month ago Davey was saying the bust will be 3/6 months ... now its 2nd half of 2022.

Maybe he missed the bust in 2020, and is like one of those Japs still fighting WW2 in the early 80s.

It would be nice if the goalposts moved back a bit rather than always away...I suppose he's only calling it how he sees it, but that would suggest they are doing everything to keep it going that bit longer.  I don't know what to think any more, I thought DXY being this high for this long was a bad condition to be in, record highs past 3 days on markets.

[Axeman123]

29 minutes ago, Hancock said:

About a month ago Davey was saying the bust will be 3/6 months ... now its 2nd half of 2022.

Maybe he missed the bust in 2020, and is like one of those Japs still fighting WW2 in the early 80s.

I have been wondering if he has gotten sick of being progress chased by people on twitter, and just banged his estimate WAY out. I really struggle to see it taking several months (potentially 5+ if 1st qtr top isn't even definite) to gain 15% on the S&P, in a "melt-up" that covers a lot of ground really fast. Sentiment certainly seems to be getting into madness-of-crowds territory already.

[sancho panza]

3 hours ago, Cattle Prod said:

Yes that's one to watch, I've heard of some horrendous hedges out there where people grabbed 40 or 50 a barrel when things were really bad. Thing is, with this backwardation, you can't hedge next year or 2023 because you're getting 5,6,7 dollars below current spot. I bet there are very few hedges in 2022 and 2023. If the price has structurally shifted and stays in this range, cashflow will explode. That's probably why share price is lagging.

If BP is hedged at say $60 average and prices averaged $75 over 2022 on oil and gas equivalent, those rolling off end 2021 would add $11bn cash. Numbers for illustration, their hedges should be in their reports.

11bn is a lot of cash, buys a lot of windmills  And as you say, renewable companies would have to raise that on the debt markets at increasing interest rates. O&G companies are part of the solution, and it's dangerous to trash them like they have been. Because I wouldn't mind that $11bn in divi either 

Edit

Just read your post above!

Must say that I'd welcome a pullback,our position is a medium term one at a minimum-it's possible we may not sell up this side of 2030 instead preferring to hedge using puts.Markets that go up and up make me nervous but the set up here is sweet.

As you say structural supply issues are going to meet full on 100++mbpd demand next year and the evidence is increasingly showing that your predictions from 2 years ago are bang on ref the 'OPEC spare capacity' plus the assorted lockdown related reductions in exploration/drop in US shale production.

AS you say,futures markets being backwardated pretty much means that any sustained rise in oil prices will reach the bottom line.

This trade really starting to remind me of the Billiton/BAT's trade from 2000.Those ladders picked up at £2 BP could 5 bag with reinvested divi's over a decade.

Decl:very long

[Loki]

Does WTI oil look like it's rolling over to you @Cattle Prod?

[Loki]

Just now, Cattle Prod said:

Technically yes, but fundamentals are very strong. Can you imagine what an Abqaiq attack would do to this market as opposed to the complacent market of 2 years ago? I wouldn't trade it in core positions (I mess about with options to keep my itch scratched), and do what @DurhamBorn does: mentally prepare yourself for a multi year investment, even if we get a savage drawdown. It's much easier to spot a trade than stay the course and not exit early. People here should have a much lower average entry than the majority of the market, therefore shouldn't get shaken out.

Thanks, I was reminded of David saying it had topped for the remainder of this cycle and would roll over. (I appreciate it's not like an on/off switch) Just wondered what an oil expert made of that idea.  To me it seemed even if it had topped it wouldn't fall far.

[Froggy2000]

2 hours ago, reformed nice guy said:

For all my fellow Drax holders:

02 Nov 2021, 6:53 pm	High offer accepted Drax 6 accepted at £4050/MWh
02 Nov 2021, 6:53 pm	High offer accepted Drax 5 accepted at £4000/MWh

https://thecurrent.lcp.uk.com/

That doesn't mean much to me being an ignoramus, but I do know I pay roughly 13p per Kwh for my home electricity.  In other words I normally pay £130 for a MWh.  Drax is charging 4k!!  Is that right?!!!

[MrXxxx]

Waiting in cash for the BK?....is it a fools prophecy to do so?...have  a look at this video and see what you think:

 

[Majorpain]

4 minutes ago, Froggy2000 said:

That doesn't mean much to me being an ignoramus, but I do know I pay roughly 13p per Kwh for my home electricity.  In other words I normally pay £130 for a MWh.  Drax is charging 4k!!  Is that right?!!!

Yes, because they are desperate for power and are forced to pay at a ripoff price to get some more generating capacity.

[MrXxxx]

8 hours ago, DurhamBorn said:

Exactly,and the macro was clear before all this started that the QE needed to be fiscal and directed through governments.The financial crisis QE re-financed the  banks,nothing more,they re-financed money lost to debt default from dis-inflation.

This time they needed to lift everything around 30% so that they could reach a point where tax increases faster than spending.To do that it had to go direct into the economy.They printed direct government fiscal spending.

They had no choice and were right to do so.If they hadnt the economy would of collapsed,and i mean systemic,not rough recession.

Key take now is to understand this is a fully blown distribution cycle and all that entails.The things that were valued least will be valued most.To sustain the same standard of living will mean spending more savings,or being paid more for your labour.

 

So probably the worst time for all those currently retiring or early retiring?!

[sancho panza]

49 minutes ago, Loki said:

Thanks, I was reminded of David saying it had topped for the remainder of this cycle and would roll over. (I appreciate it's not like an on/off switch) Just wondered what an oil expert made of that idea.  To me it seemed even if it had topped it wouldn't fall far.

DH may have a deeper understanding of liquidity issues than the specifics of one industry in particular.He may well be lookign at it using roadmaps and calling the top from there.

Obviously the people who dig for oil may have a different view.

I'd say the issues that face the oil markets at the minute are mainly driven by supply/demand imbalances rather than CB liquidity issues which is why I'd differ from DH here.

Whereas say,gold,is still being driven mainly by liquidity issues imho

10 minutes ago, Cattle Prod said:

In a BK, oil will completely dump. But I'm not too fussed about that because I'm convinced reactions by the Fed and CBs will be fast and substantial and the dump will be quick. Oil equities may not suffer much at all. And the cycle I'm interested in is another 7 or 8 years to run.

I think there's a sweet spot looming before the BK arrives in earnest to sell high and try and buy back low.2008 deja vu all over again.Same in a lot of commodities .We know that histroically a 100% plus rise in oil price can trigger/herald recession,recessions lead markets down.

Problem is for us we're in that low that it becomes a question of selling a postion that helps me sleep at night to maybe trying to get a 50% bigger postion and maybe risking getting it worng and losing 50% which might start me not sleeping at night....

[DurhamBorn]

6 minutes ago, MrXxxx said:

So probably the worst time for all those currently retiring or early retiring?!

Well that depends,but for a lot yes.There arent many areas can leverage the inflation.BTL for instance will see costs going up much faster than rents.

Retiring understanding things can be great.Iv spent £120 on diesel since i retired in Feb for instance and done a few jobs on the house that would of cost a few grand if id got someone to do it.

 

[Loki]

2 minutes ago, sancho panza said:

DH may have a deeper understanding of liquidity issues than the specifics of one industry in particular.He may well be lookign at it using roadmaps and calling the top from there.

Obviously the people who dig for oil may have a different view.

I'd say the issues that face the oil markets at the minute are mainly driven by supply/demand imbalances rather than CB liquidity issues which is why I'd differ from DH here.

Whereas say,gold,is still being driven mainly by liquidity issues imho

Very good point, thanks

[Hancock]

21 minutes ago, sancho panza said:

I'd say the issues that face the oil markets at the minute are mainly driven by supply/demand imbalances rather than CB liquidity issues which is why I'd differ from DH here.

Your post about the Germans retail sales falling 2.5% less is surely a sign that demand is starting to fall.

Baltic Dry index is dropping like a brick.

Demand seems to be falling for life's non essentials.

[sancho panza]

13 minutes ago, Hancock said:

Your post about the Germans retail sales falling 2.5% less is surely a sign that demand is starting to fall.

Baltic Dry index is dropping like a brick.

Demand seems to be falling for life's non essentials.

yeah it is,but talking from experience here,I've sold too early before.The public are clearly beginning to fear the price rises that are coming.My Mum does her stuff for me listening to the old ladies and their families and the talk is doom mongering stuff by any standards.I'm not surprised retail sales are dropping if people are fearing job losses/income drops

I'll dig up a post I did on oil price rises and recession starts in 90/00/08 tmrw if I remember.Key thing is that you have to remember that recession start can often be retrospectively changed due to the GDP data getting adjsuted(as it does every quarter sometimes up to 6-12 months after the end)

A deflationary BK event looks highly likely,stock market drop will follow imho.Retail sales are an indicator but stock markets may get driven higher by commodity prices.Still lots of bulls out there and others believing the Fed has this under control

For me junk bond yields running negative in real terms and the US govt interest bill being 111% of tax receipts only ends one way.It's jsut the timing.For now I remain long the oils/telecoms/potash/goldies etc but reserve the right to be worng

[sleepwello'nights]

9 hours ago, Froggy2000 said:

That doesn't mean much to me being an ignoramus, but I do know I pay roughly 13p per Kwh for my home electricity.  

Not for much longer.

[belfastchild]

I know nothing about this and havent done any research but... ;-)

Had a thought catching up with the thread this morning about the amount of QE and various other things in the money supply and where it goes and how it goes etc.

Does anyone know how feasible it would be for a FAANG/crypto crash to facilitate the FED/ECB/BOE 'repatriating' a lot of the QE personal money supply?

Trying to chase up this green bonds thing and financial houses 'having to' invest in a certain amount of green stuff (think its all COP noise myself) but that would be another way of bringing the money supply sent to citizens back in house (and then some).

[DurhamBorn]

10 hours ago, Hancock said:

Your post about the Germans retail sales falling 2.5% less is surely a sign that demand is starting to fall.

Baltic Dry index is dropping like a brick.

Demand seems to be falling for life's non essentials.

Will be lumpy ,but that should be the story of the cycle.Massive tax increases and inflation are coming mainly from the middle who would tend to spend more on higher value items.The tax is being given to those lower down who tend to spend more on essentials and simple consumption.Distribution cycle.

Some areas seeing big cost pressures are also about to see big demand pressure.Its much harder for companies to navigate this king of cycle.

The drop off should see more onshoring though as a lot of the problems are supply based as inflation hits every part of the chain.JIT and long chains have inverted now and are a huge headwind instead of tailwind.People think it will calm down soon,and it will seem to improve slightly,but then carry on.If i was advising big corporates id of told then 3 years ago to start onshoring.We have been so hollowed out though you cant just go to a local forge etc anymore.

 

[DurhamBorn]

53 minutes ago, belfastchild said:

I know nothing about this and havent done any research but... ;-)

Had a thought catching up with the thread this morning about the amount of QE and various other things in the money supply and where it goes and how it goes etc.

Does anyone know how feasible it would be for a FAANG/crypto crash to facilitate the FED/ECB/BOE 'repatriating' a lot of the QE personal money supply?

Trying to chase up this green bonds thing and financial houses 'having to' invest in a certain amount of green stuff (think its all COP noise myself) but that would be another way of bringing the money supply sent to citizens back in house (and then some).

Inflation = + Tax + Rate Increases.

They dont want it in house though.Once in the pipes it has a bit of fun,but ends up where the economy needs it,where the price signals are.

 

[HousePriceMania]

[DurhamBorn]

Some of the Brasil stocks are getting into nice areas to open positions for anyone who wants exposure and who can live with the volatile nature.Not for widows etc etc DYOR.

AGRO,CIG,VIV,TIMB iv been adding to or set more ladders at 4% drops.

Iv sold out of Alcoa Corp pretty much 4x on that,though didnt buy a vey big holding, and iv moved 1/2 into TEF Germany this morning and im going to get a few Verizon later.

 

[DurhamBorn]

36 minutes ago, HousePriceMania said:

Nuts arent they.They forget its a market of stocks,individual companies.These people seem to think its an entity as one.

It was the same at the end of the tech boom.Ordinary boring companies were hated and at low PEs.Contrarian wet dream.

[HousePriceMania]

4 minutes ago, DurhamBorn said:

Nuts arent they.They forget its a market of stocks,individual companies.These people seem to think its an entity as one.

It was the same at the end of the tech boom.Ordinary boring companies were hated and at low PEs.Contrarian wet dream.

DB the trouble is, it's got so extreme, bubbles everywhere, CBs unable or unwilling to act, that when something does finally pop, it's going to be very very bad for people.

 

[Barnsey]

It'll be an economy rolling over, not rate hikes, which will hit homeowners.

https://duncanweldon.substack.com/p/the-bank-of-england-can-turn-a-mistake

According to the Financial Conduct Agency over 90% of mortgages taken out in the last five years have been on a fixed rather than a variable rate. By contrast, as recently as a decade ago over 60% of UK mortgages were on a variable rate.

An excellent analysis by the Bank a couple of years ago demonstrated that, as of late 2019, it would take around 3.5 years for any change in Bank Rate to feed through into the monthly mortgage costs of the median mortgage borrower.

[JMD]

16 hours ago, jamtomorrow said:

Yep, the 'Stay Puft' marshmallow man BK is incoming!!!    ...In fact I think that the name/image works particularly well on many levels - I wonder might that 'Stay Puft' image become a BK meme for this thread?!                                                                                     

[HousePriceMania]

Anyone else's oil shares being hammered this week ?